Originally published on 5/17/13
Jamie Dimon is wagging his finger from newstands across America this week, above the kind of headline his PR team can only dream of: “DIMON IS FOREVER: Why Jamie Dimon is Wall Street’s Indispensable Man”.
The story itself, by Nick Summers and Max Abelson, consists mainly of rich corporate insider types talking about how wonderful Jamie Dimon is, and how ridiculous it is that anybody might consider stripping him of the chairmanship of JP Morgan. Here’s a doozy:
Admiring rivals have been known to call Dimon “the sun god.” That cosmic aura has real use, says Kathryn Wylde, who served on the Federal Reserve Bank of New York’s board with Dimon until his term ended last year. “There’s no doubt that it helped the bank, because so much of that business is built on confidence.” The intrusion of shareholders, in the form of a vote on Dimon’s dual roles, she adds, is “indefensible if the company is performing well.”
Wylde is one of those great-and-good people who turn up on boards all over the place: not only the New York Fed, but also everything from the NYC Economic Development Corporation and the Manhattan Institute to the Lutheran Medical Center and the US Trust Advisory Committee. Her day job is serving as the president and CEO of the Partnership for New York City, a partnership made up exclusively of large companies and the rich people who lead them. JPMorgan is unshockingly among them. Her view of the role of shareholders in corporate governance is fascinating: it’s “indefensible” for them to care about such things so long as they’re getting paid.
But clearly shareholders do care about governance: both Institutional Investors Services and Glass Lewis, advisory firms paid to work out what is in the best interests of shareholders, have come to the entirely reasonable conclusion that Jamie Dimon should not keep his job as chairman of the board.
The battle line between princpals and agents has never been more clearly delineated than it is here. The shareholders of JP Morgan (JPM) — the owners of the company — want a board which represents their interests, and which can control what the CEO does. The managers and captured professional board members, on the other hand — the CEO class — have rallied around Dimon in an impressive display of high-wattage solidarity. Bloomberg Businessweek quotes Bill Daley, John Mack, Jimmy Cayne, Phil Gramm, Dick Kovacevich, and “two dozen of Dimon’s peers and colleagues” in his defense; Andrew Ross Sorkin, for good measure, adds Barry Diller and Hank Paulson.
Will shareholders see this awesome display of PR firepower and decide that Jamie’s right, he should stay on as chairman after all? If they’re narrowly focused on the short-term future of the JP Morgan share price, then probably they will. After all, Dimon has petulantly threatened to quit if the motion goes through, which would be bad for the share price — and as all of these articles are at pains to point out, there’s not much evidence that splitting the chairman and CEO roles is likely to do any particular good for JP Morgan’s share price over the medium term. (It can help underperforming companies, but that effect disappears with respect to relatively strong ones.)
The cult of the CEO is still going strong: just look at the way Bloomberg has appointed the ex CEO of IBM to try to help the company recover from its recent data scandal. So maybe if you get enough CEOs supporting Dimon, their collective weight will help tip the balance. (Although it’s hard to believe that any shareholders particularly value the opinion of Jimmy Cayne on this issue.)
But the fact is that Dimon should not be chairman of JP Morgan, and shareholders can see exactly why just by looking right there at the cover of Bloomberg Businessweek. No one man should ever be indispensable, and it’s the job of the chairman to ensure that the company is in good solid health no matter what happens to the CEO.
A fuller, and quite wonderful, explanation has also been offered up by the Epicurean Dealmaker, who makes a few more salient points. He explains:
The entire point of separating the roles of Chairman of the Board and Chief Executive Officer is that they have different responsibilities and duties. They are different jobs. Now, perhaps at smaller companies with simple business models and uncomplicated objectives (grow revenues fast enough to meet payroll and pay the bank on time), there is no practical need to separate them. But the bigger a company gets—and I think we can all agree J.P. Morgan is about as big as a firm can get—the breadth and scope of duties each role properly possesses expands dramatically.
Even if Dimon is a great CEO, there’s really no evidence at all that he’s a great chairman, and JP Morgan’s shareholders have the right to install the best possible officeholder in each of those roles.
How do we know that Dimon is a bad chairman? Well, there’s the fact that there’s no good succession planning, for starters. And then there’s the board itself, which is basically a bunch of supine muppets, who do as they’re told rather than actually representing shareholders and holding the CEO to account.
Most intractably, there’s the question of shifting goalposts. As the Epicurean Dealmaker points out, Jamie Dimon is the very last person on the planet who should be in charge of judging whether Jamie Dimon is doing a good job as CEO. For instance: it’s impossible for a bank with $2.4 trillion in assets and 256,000 employees to stay out of regulatory trouble entirely. But how many fines is too many? As Businessweek points out, “the litigation section of the bank’s quarterly filings now runs to almost 9,000 words, or 18 single-spaced pages.” At what point does the litany of legal and ethical lapses become so long that the CEO has to take responsibility, and/or break up the company into small-enough-to-manage chunks? This is an important question, and Jamie Dimon cannot answer it. You need an independent board to do that — to set the goalposts — and JP Morgan’s board is not independent.
In theory, shareholders elect directors, who hire the CEO to run the company. In practice, the CEO picks the directors he wants, pays them a handsome stipend for doing nothing, and they in turn make no attempt to listen to what the company’s shareholders might desire. In fact, they’re quite offended when it’s suggested that they might want to do that at all.
The debate about this vote often seems as though it’s two groups of people talking at cross purposes to each other: the Dimon defenders are making it all about him personally, and what a good job he’s done running the company, while the good-governance types generally say nothing personally about Dimon at all, and instead insist that all they’re doing is standing on principle.
But in fact this is about Dimon personally: it’s about how much power one man can or should be allowed to have. Dimon has too much. It’s time to give him a boss.